Why product liability may lower product safety

Florian Baumann, Tim Friehe and Alexander Rasch

Economics Letters, 2016, vol. 147, issue C, 55-58

Abstract: This article shows that shifting accident losses from consumers to a monopolist may lower product safety when fully informed consumers differ in their level of harm. In determining product safety, the monopolist considers a linear combination of the average harm of all consumers served and the harm level of the marginal consumer. Shifting more losses to the monopolist allocates more of the firm’s attention to the average harm level, which is lower than the harm level of the marginal consumer. The fact that shifting losses to the firm may reduce product safety is robust to the consideration of insurance costs.

Keywords: Product liability; Monopoly; Product safety (search for similar items in EconPapers)
JEL-codes: D43 K13 L13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:147:y:2016:i:c:p:55-58

DOI: 10.1016/j.econlet.2016.07.037

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